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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 5, 2007 
ISSUE 
 
¶1. (U) Summary.  This is Volume 7, issue 14 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Mineral Rights Expropriation Claims Push SA to Extend Claim 
- Mittal Steel's New Kiln Project Draws Criticism 
- Wine Industry Falters in 2006 
- Africa's Only Green Bank - Nedbank 
- Disapproval of Antidumping Law Proposal 
- Record Tax Revenues - Again 
- Growth Projections to Be Revised Upward 
 
End Summary. 
 
Mineral Rights Expropriation Claims Push SA to Extend Claim 
--------------------------------------------- 
¶2. (U) Italian investors in two major South African granite 
companies launched expropriation claims of 266 million Euro (2.5 
billion rand or $349 million) against the South African government 
at the World Bank's International Centre for Settlement of 
Investment Disputes (ICSID) in January.  The lawsuit claims a loss 
of mineral rights to the state and the cost of having to sell a 26% 
share in their operations.  This action is the first lawsuit 
alleging that SA's mining charter, which seeks to boost involvement 
of black South Africans under Black Economic Empowerment (BEE) in 
this sector, amounts to expropriation.  The mining charter transfers 
all mining rights to the government and requires mining firms to 
meet specific conditions to obtain a new license, including selling 
26% ownership to black investors by 2014.  According to the Italian 
firms' attorney, Peter Leon, the main part of the claim relates to 
the expropriation of mineral rights occurring from unused old order 
mining rights that were not able to be converted to new mineral 
rights, not to Black Economic Empowerment (BEE) requirements.  The 
Italian mining companies are suing on the grounds the legislation is 
a breach of international investment law and bilateral investment 
treaties between SA and the Italian and Belgo-Luxemburg economic 
union.  The hearing will likely take place over the next two years. 
¶3. (U) The lawsuit, if successful, could be a catalyst for other 
mining companies to bring similar actions under SA law.  The SA 
government recently announced it had extended the deadline for 
mining companies to file for compensation for the loss of mining 
rights by two years to avoid a deluge of filings before the current 
deadline of April 30, 2007.  The extension will also allow potential 
claimants to obtain the results of the lawsuit before the claim 
deadline.  (Mail and Guardian, March 9, 2007; Business Day, February 
16 & March 23, 2007) 
 
Mittal Steel's New Kiln Project Draws Criticism 
--------------------------------------------- -- 
 
¶4. (U) Mittal Steel recently began construction of two new kilns to 
expand its liquid steel capacity in its Vanderbijlpark plant. 
According to Mittal, the surge in steel demand and the flurry of 
activity in infrastructure expansion require greater capacity to 
meet growing demand.  However, Mittal's use of foreign contractors 
has cast a shadow over the project.  The bulk of this 600 million 
rand ($85.7 million) project has been contracted to a Chinese firm 
to build the kilns and an Indian firm to build the accompanying 
power plant.  These firms will import skilled labor to complete the 
job.  Mittal was criticized last year for using a Chinese consortium 
to build a coke oven battery.  The trade union, Solidarity, objects 
to the use of foreign labor citing that Mittal did not provide 
skills transfer as promised in its last project.  The union believes 
Mittal's mode of operations undermines SA's objectives to promote 
growth and jobs.  (Business Day, March 30, 2007) 
 
Wine Industry Falters in 2006 
----------------------------- 
 
¶5. (U) For the first time since 1992, wine exports fell in 2006. 
The 3.5% drop in exports is being blamed on the strength of the 
rand, which reduced margins and left less money for marketing, and 
the twice ownership change of the biggest single brand, Kumala, 
according to the CEO of Wines of SA (Wosa), the industry's export 
arm.  Kumala's exports to the UK, the industry's largest market, 
declined 26%.  Tough competition from Australia for promotional 
slots in the large supermarkets is also cited for the downward 
slide.  Another worrying trend is the rise in bulk exports and the 
decline in bottled wines, which has implications for the local 
bottling industry and undermines the drive by wine exporters to 
 
PRETORIA 00001211  002 OF 003 
 
 
create strong brand awareness.  Bottled wine fell 7% year-on-year in 
2006, while bulk sales went up 4%.  However, not all is doom and 
gloom.  Wosa believes that projecting a more "premium image" of 
wines bottled at the source can turn the industry around and volume 
sales are already up for 2007.  Wosa also hopes for more government 
support as the industry is SA's second largest exporter after cars 
and car parts and employs 250,000.  (Business Times, April 1, 2007; 
Business Day - The South African Exporter, April 2007) 
 
Africa's Only Green Bank - Nedbank 
---------------------------------- 
 
¶6. (U) Nedbank financier and environmental lawyer Justin Smith 
announced that Nedbank has become the first and only bank in Africa 
that has adopted an environmental benchmark for promoting 
sustainable development, known as the "Equator Principles." 
Nedbank's environmental advisor, Christina Wood, defines the Equator 
Principles as "a comprehensive set of environmental and social 
guidelines for the financing of projects."  Forty-one financial 
institutions have adopted the principles worldwide, representing 80% 
of this year's global project financing.  The benchmark is aimed at 
promoting socially responsible development, and ensuring that 
projects financed by the banks reflect sound environmental 
management practices.  Nedbank has begun recycling programs for 
paper and water and has also adopted the use of a variety of low 
energy devices.  A Nedbank study reports that over 70% of the staff 
is proud to be working for a bank with a commitment to the community 
and the environment. 
 
¶7. (U) Smith notes that most South African leading firms are not 
participating in this initiative. He said that more than 40 percent 
of the top 40 companies in the Johannesburg Securities Exchange do 
not have an environmental officer, and about 16% have either weak or 
no sustainable development reports.  Smith also opines that the SA 
government has not worked well on commercially sustainable 
development policies.  He notes that the government did not include 
sustainable development in the Black Economic Empowerment (BEE) 
charters.  He also commented that the civil society has remained too 
silent on the issue of sustainable development promotion within 
financial institutions.  (Business Day, February 19, 2007) 
 
Disapproval of Antidumping Law Proposal 
--------------------------------------- 
 
¶8. (U) The International Trade Administration Commission (ITAC) is 
facing criticism for its proposed revisions to SA's antidumping 
regulations released on March 29, 2007 for comment.  Trade 
specialists argue that the changes miss the mark and that the entire 
proposal needs to be scrapped and re-started through proper 
consultation with the export/import sector.  The most significant 
changes include new provisions for oral hearings, which trade 
experts think provides too much discretion in the hands of ITAC as 
to whether to hold hearings and lacks clarification as to the 
hearing format.  The experts say this is dangerous given that ITAC 
recently refused to hold oral hearings despite good cause and the 
planned changes may not conform to World Trade Organization 
requirements.  They state that the proposal should provide for both 
adverse parties' meetings and individual meetings with interested 
parties, and should not allow ITAC the ability not to impose 
provisional measures even where all requirements for imposition have 
been met.  Revisions that reintroduce public interest as a factor 
may cause further delays in the investigation process and may lead 
to political interference.  Lastly, an amendment to the definition 
of assembly operations was criticized because it will likely 
disqualify at least 50% of all industries in SACU from lodging 
antidumping applications.  (Business Day - The South African 
Exporter, April 2007) 
 
Record Tax Revenues - Again 
--------------------------- 
 
¶9. (U) The South African Reserve Bank (SARB) announced record tax 
revenues at the end of the tax year ending March 31, 2007. 
Preliminary 2006-07 gross revenue was 495.1 billion rand ($67.6 
billion).  This is 5.5 billion rand ($751 million) more than the 
revised target announced on February 21, and 39 billion rand ($5.3 
billion) more that the February 2006 budget forecast.  Finance 
Minister Trevor Manuel identified higher-than-anticipated corporate 
profits as the most important source of unexpected revenue, but 
additional revenues were received in all major tax categories.  The 
 
PRETORIA 00001211  003 OF 003 
 
 
breakdown of unexpected revenue was: corporate taxes (23.3 billion 
rand); individual taxpayers (7.5 billion rand); secondary tax on 
companies (1.7 billion rand); value added tax (3.5 billion rand); 
and other taxes and duties (2.5 billion rand).  The additional 
revenues suggest that the projected revenues for 2007-08 will also 
have to be revised upward from 557 billion rand ($76.1 billion) when 
the mid-term budget review is presented to Parliament next October, 
since there is little reason to believe that economic growth will 
slow in the coming year.  Furthermore, the budget surplus for 
2006-07 will increase from the 0.3% of GDP projected in February to 
0.8%.  Manuel said he would use the surplus to reduce the country's 
debt load "as far as it can go and as fast as we can" in order to 
spend less money on interest and leave more money for other 
government programs, such as education and infrastructure. 
(Business Day and Business Report, April 2 & 3, 2007) 
 
Growth Projections to Be Revised Upward 
--------------------------------------- 
 
¶10. (U) The higher-than-expected tax revenues suggest that the 
economy is growing much more rapidly than had been thought. 
Treasury Director General Lesetja Kaganyago said SA's economy would 
grow at more than 5% this year, up from the February 21 budget 
projection of 4.8%.  Kaganyago said it was heartening that domestic 
demand was shifting from consumption to capital formation that would 
"add to the future growth of the economy."  He noted that if mining 
and agriculture were excluded, the economy was already growing at 
6%, the government's GDP growth target for 2010.  Finance Minister 
Manuel said the trend line of growth had shifted from 4.5 to 6%, but 
the challenge remained to raise this rate even higher by removing 
constraints such as red tape and inadequate infrastructure. 
(Business Report, April 2, 2007) 
 
BOST